Volume 34,
Issues 10 & 11
Auto Advisor y Ser vices®
TRANSMISSION
Helping make compliance automatic
Auto Advisory Services’ Rob Cohen Joins National
Law Firm Arent Fox
AAS is proud to announce that Rob Cohen
will add another post to his portfolio and
has joined forces with the national law firm
of Arent Fox as senior automotive counsel.
Of course, Rob will remain president of
AAS, but Auto Advisory Legal, PLC will be
folded in to Arent Fox. Rob will work with
the Automotive Practice Group in the Los
Angeles office of Arent Fox. Rob’s practice
focuses on regulatory issues in the automotive industry, with a special emphasis on
complex retail sales and finance regulatory
requirements.
As many AAS clients know, Auto Advisory
Legal is a law firm that provides legal services to many dealer clients in California.
Auto Advisory Legal clients will now have
the same level of highly specialized legal services available through Arent Fox. In fact,
Auto Advisory Legal clients will now have
access to a much broader range of legal services. Arent Fox’s Automotive Practice
Group attorneys represent dealers all across
the country in consumer and employmentrelated litigation, government enforcement
actions, factory disputes, protests before
motor vehicle dealer boards, and dealership
buy-sells.
"Very few attorneys have the ‘street level’
legal expertise that Rob has. Rob’s experience working inside dealerships has given
him a deep understanding of the automotive
industry, and we are very excited to have
Inside this issue:
Auto Advisory Services’ 1
Rob Cohen Joins
National Law Firm
Arent Fox
Court Rules Arbitration 1
Clause in Vehicle Retail
Installment Sale
Contract Invalid
Dissecting the Sanchez 2
Decision: No More
Arbitrations?
What’s Hot on the
Hotline: KSRs for
New Vehicles?
3
Auto Advisory
9
Services and Arent Fox
Announce Year-end
New Law Workshops
(Continued on page 2)
Court Rules Arbitration Clause in Vehicle Retail
Installment Sale Contract Invalid
On Monday, October 24, a California appellate court held that the arbitration clause in
the LAW® 553-CA-ARB (5/08) contract is
unenforceable and "unconscionable." In the
legal world, "unconscionable" is a term used
to describe a contract provision that is
grossly unfair and/or heavily one-sided. In
the case of Sanchez v. Valencia Holding Company, LLC (2011 WL 5027488), the court
concluded that the arbitration provision in
question is invalid not only because of the
language itself (found on the back of the 553CA-ARB), but also because of the way the
arbitration clause is presented (or not presented) to consumers. The court provided
numerous reasons why the arbitration language unfairly benefits dealers and harms
consumers. Then, the court proceeded to
October/November, 2011
criticize the placement of the arbitration
clause as well as the fact that the arbitration
provision is not optional for the consumer. In
essence, the court really went out of its way
to declare the clause illegal.
So what does this mean for California dealers? Dealers are going to have to make some
decisions here. But before doing so, dealers
will need to consult with two sources, their
lenders and their own attorneys.
Some lenders may take the position that the
Sanchez court got it all wrong and the California and/or U.S. Supreme Court will overturn the decision someday. Therefore, some
lenders may say "it's business as usual" and
(Continued on page 6)
Checklist for Contract 10
Completion
Auto Advisory Services has made reasonable efforts to ensure the accuracy of
the subject matter reported. AAS makes
no express or implied warranty respecting the information presented and assumes no responsibility for errors or
omissions. If legal advice or other expert
assistance is required, the services of a
competent professional should be
sought.
14771 Plaza Drive, Suite A
Tustin, California 92780
Voice: 800.785.2880
Fax: 714.838.2205
www.autoadvisory.com
Page 2
Transmission (October/November, 2011)
Rob Cohen Joins Arent Fox (Cont.)
(Continued from page 1)
him join our team." said Aaron Jacoby, chair of Arent Fox’s
Automotive Practice Group.
By partnering with Arent Fox, Rob joins one of the most
highly respected and widely recognized automotive practices
in the nation.
AAS is also proud to announce that Lisa Singer, managing
attorney for Auto Advisory Legal, has accepted a position
with Arent Fox as a consulting attorney. Because of this,
Lisa’s representation of dealer clients will continue uninterrupted.
About Arent Fox
Arent Fox LLP, with offices in Los Angeles, Washington, DC,
and New York, is a recognized leader in legal practice areas
such as automotive, sports, white collar, intellectual property,
real estate, telecommunications, health care, international
trade, bankruptcy, and complex litigation. With more than
350 lawyers nationwide, Arent Fox has extensive experience
in corporate securities, financial restructuring, government
relations, labor and employment, finance, tax, corporate compliance, and the global business market. The firm represents
Fortune 500 companies, government agencies, trade associations, foreign governments and other entities.
About Rob Cohen
Rob Cohen is president of Auto Advisory Services, a leading
compliance consulting company with a client base of nearly
500 dealerships. Prior to devoting his full time effort to Auto
Advisory Services, Rob represented automobile dealers in
litigation and served as in-house general counsel to an eightfranchise dealer group in Los Angeles. Rob is a founding director and immediate past-president of the National Association
of Dealer Counsel and has recently co-authored a comprehensive legal reference book and management guide and subscription service titled Auto Dealer Law
(www.autodealerlaw.com). Rob is an accomplished author,
speaker, and trainer in regulatory compliance matters.
About Lisa Singer
Lisa Singer is an attorney and member of the California bar.
Prior to joining Auto Advisory Legal, Lisa previously served as
the General Counsel of the Cush Automotive Group for five
years. In that capacity, Lisa handled all legal matters relating to
the dealer group. She oversaw the group's human resources
department, worker's compensation and business liability insurance programs. Lisa also handled consumer complaints,
and reviewed and negotiated all dealership agreements with
vendors, manufacturers, insurers and lenders. In addition, Lisa
created and implemented loss prevention programs designed
to promote legal compliance among dealership employees.
Similarly, Lisa developed and implemented Auto Advisory Services' Customized Compliance Certification ("CCC") program. For four years, she worked with Auto Advisory's dealer
clients throughout California. While heading the CCC program, Lisa created custom codes of ethics forms for salespeople as well as sales and finance managers. As part of the CCC
program, Lisa also conducted compliance seminars and numerous legal workshops for dealership managers and employees.
Dissecting the Sanchez Decision: No More Arbitrations?
By Christian Scali, Esq.
Back in August, I reported that, despite the United States
Supreme Court’s opinion in AT&T Mobility v. Concepcion, dealers were in for a bumpy road ahead as Congress, the Consumer Financial Protection Bureau, and various state and federal courts continue to struggle with pre-dispute arbitration
clauses in consumer finance contracts. On October 24, the
automotive retail sale industry became the most recent casualty, suffering a devastating blow.
Ignoring the class action waiver provision and sidestepping
AT&T Mobility v. Concepcion, the California court of appeal
held in Sanchez v. Valencia Holding Company, LLC that the arbitration provision in the LAW 553-CA-ARB form is so permeated with unconscionable clauses that it is invalid under state
law, regardless of the enforceability of the class action waiver.
Here are the facts. Sanchez bought a car from Valencia Holding Company, LLC (a dealership) and executed a retail installment sale contract on the pre-printed LAW® 553-CA-ARB
form. Mr. Sanchez thereafter hired an attorney and brought a
class action against the dealer under the Automobile Sales
Finance Act, the Consumers Legal Remedies Act (CLRA) and
related consumer protection laws. The complaint alleged various irregularities in the sale contract, including:
1. Failing to properly document a deferred downpayment;
2. Failing to separately itemize and distinguish registration,
transfer, and titling fees, on the one hand, from license
fees, on the other hand (a/k/a “fee lumping”);
3. Charging buyers the Optional DMV Electronic Filing Fee
without discussing it or asking the buyer if he or she
wanted to pay it;
(Continued on page 4)
Transmission (October/November, 2011)
Page 3
What’s Hot on the Hotline: KSRs for New Vehicles?
By Scott Jakust, Esq.
Readers of this article are cautioned. When you reach the
end you may have the feeling you are possessed by the spirit
of former professional tennis player John McEnroe in his
prime responding to a bad call by a linesman. You might find
yourself screaming, “You can’t be serious!”
The AAS Hotline has now taken several calls which present a
common scenario. Two dealerships sharing a common franchise do a dealer trade of two ostensibly new vehicles. Sometime thereafter one of the vehicles is sold and during the
course of the actual sale the selling dealer (the “Retailer”)
executes an “Application For Registration of New Vehicle,” DMV
Form REG 397, known informally as a New Vehicle Report of
Sale. Within 20 days of sale, the REG 397 and other necessary paperwork are sent to the DMV to effect registration of
the vehicle into the name of the buyer. Very soon thereafter,
the entire application is unexpectedly returned to the Retailer
by the DMV with the explanation that the vehicle is already
registered to another person, so a Used Vehicle Report of Sale
(REG 51) must be completed and submitted to effect the desired transfer of ownership. The Retailer’s DMV clerk wonders, “How can that be; we sold a new car?” The DMV Clerk
runs a KSR and learns that, yes, the vehicle is already registered, and the record indicates the title was issued many
weeks before the vehicle was acquired from the original
dealer (the “Trader”).
Reconstructing the chain of events, it appears the following
happened. Weeks prior to the dealer trade the Trader was
working a deal to sell the vehicle. The prospective buyer was
in the finance office. All documents required to process the
sale had been signed by the buyer and the Finance Manager,
including the contract and the New Vehicle Report of
Sale. All that was left to do was for the manager to collect
the buyer’s downpayment check and for the buyer to collect
the keys. At literally the last minute the buyer got cold feet
and fled the finance office and the dealership. It was late and
the thoroughly frustrated finance manager was in a hurry to
leave. He was off for the next few days and he simply left all
of the paperwork for the failed transaction on his desk.
The paperwork was never properly voided. In fact, the Report of Sale found its way to the Business Office and, appearing complete, was submitted to the DMV as if the vehicle had
been delivered and the transaction consummated. The vehicle was registered to the “buyer” and the title was issued to
the legal owner. All of this happened despite the fact the vehicle was still there in inventory as if no sale had taken place
(which was in fact the case). This is why the vehicle came up
as a potential candidate for a dealer trade when the Retailer
later called looking for such a vehicle. Just as no one in the
Business Office was aware the vehicle had not been sold, no
one in the Sales Department realized the vehicle had been
titled and registered. And, having never been sold or delivered, there is no unusual mileage accumulation on the odometer that might otherwise have clued people in that the vehicle
could be anything other than new.
But all of these facts do not come to light for some time. The
first thing that happens is that the Retailer’s DMV clerk or
responsible business or sales manager contacts their counterpart at the Trader’s dealership and asks, “Why did you provide
us with an unwind when we were trading for a new vehicle?” After an exchange of information and a short investigation, Trader personnel contact the Retailer and say the word
feared most by DMV clerks: “Oops.” Those who are familiar
with the law are aware of the gravity of the situation.
California Vehicle Code (CVC) section 11713(d) provides it is
unlawful for a dealer to advertise or represent a vehicle as a
new vehicle if the vehicle is a used vehicle. Additionally, CVC
section 11713.1(v) and Civil Code section 2982(q) require
dealers entering into conditional sale contracts to disclose on
those contracts whether the vehicle is being sold as a “new
vehicle” or a “used vehicle,” as those terms are defined in the
Vehicle Code. CVC section 665 provides a rather lengthy
definition of what makes a vehicle a “used” vehicle. Among
other things, “[a] ‘used vehicle’ is a vehicle that …has been
registered with the department…” The mirror image of this
definition—the definition of a new vehicle—appears in CVC
section 430, which states, “[a] ‘new vehicle’ is a vehicle … that
has never been … registered with the department….” The
vehicles at issue had each been registered with the DMV prior
to their sales as purported new vehicles. The fact that they
were registered in error is certainly important, and if proven,
it will dramatically mitigate the liability of the dealer.
In each case we have an unsold-but-registered vehicle that was
sold as a new vehicle to a true first-buyer by the Retailer. But
as it stands, the registration to the Retailer’s buyer—no…the
transfer of ownership—cannot take place without: a release of
interest and odometer statement from the current registered
owner; a lien release from the current legal owner; and the
completion and submission of a Used Vehicle Report of Sale
bearing a signature of the customer. This is going to require
the cooperation of quite a few people. To be sure, the Retailer would like nothing more than to contact their customer
and invite them to return the vehicle, accept a different new
vehicle in its place and return the now truly used vehicle to
the Trader from whence it came. Retailer personnel draw
straws to determine who will call the buyer. The Trader, who
is not particularly interested in getting the vehicle back, wonders if it will be possible to obtain needed signatures on a
statement of non-delivery from the customer who blew out of
the Finance Office and disappeared. Both dealers reach for
(Continued on page 4)
Page 4
Transmission (October/November, 2011)
KSRs for New Vehicles? (Cont.)
(Continued from page 3)
the phone and say a prayer, wondering hopefully, “What’s the
worst that can happen?”
So far, the worst that can happen has happened to at least
three dealers who were the Retailers of these alreadyregistered and dealer-traded vehicles. They are all facing civil
actions for fraud and misrepresentation from their buyers
who claim to have been sold used vehicles disguised as new
vehicles. One dealer is also facing administrative liability at
the hands of the DMV. An accusation has been initiated
against this dealer’s license for violations of the abovereferenced Vehicle Code and Civil Code provisions that set
forth a dealer’s obligations concerning the correct representation of vehicles as either “new” or “used.” So far, the Retailer’s claims of innocence and ignorance have been unavailing.
Proper control procedures could have prevented this unfortunate circumstance. On the Trader side, when the “failed” sale
first blew up and the would-be buyer fled, immediate action
should have been taken to void the paperwork or at least flag
it somehow for special handling, especially the Report of
Sale. If the erroneous registration was discovered prior to
the trading of the vehicle, the title and the registration could
have been canceled with the DMV, and the vehicle would
truly be “new” again. The fix would involve use of DMV Form
REG 477, Statement of Facts Incorrectly Reported Vehicle. Unfortunately, now that the vehicles have been sold, submitted to
the DMV and their paperwork returned to the dealer, the
“RDF in process” status makes it extremely difficult—and time
-consuming—to actually implement this correction procedure.
On the Retailer side, as the title of the article implies, the
situation could have been avoided if a KSR was obtained at the
time the vehicle was acquired. The status of the vehicle as
“registered” could have been detected before sale and the
vehicle returned to the Trader for them to fix their own mistake. In the same way a prudent dealer will obtain a vehicle
history report before acquiring and/or selling a used vehicle,
perhaps prudent dealers should also consider running a KSR
on vehicles believed to be new that are about to be acquired
from other dealers. Heck, that could even be done before the
vehicle actually leaves the other dealership, assuming the VIN
is obtained. If you find yourself in the position of a Retailer
who sold as “new” a vehicle which had been previously registered, the most expeditious way to preserve good customer
relations and prevent a complaint to the DMV is to unwind the
sale and take the customer out of the vehicle. After all, it is
likely going to be months before you can get a registration to
them and a title to the legal owner.
Running KSRs on dealer-traded “new” vehicles? Maybe it does
make sense. But please, don’t shoot the messenger.
The Sanchez Decision (Cont.)
(Continued from page 2)
4.
5.
Charging new tire fees for used tires; and
Requiring Sanchez to pay a premium to obtain certified
pre-owned status for the vehicle as a condition of financing the deal at a more favorable rate.
The dealer filed a motion to compel arbitration in response
to the complaint. The trial court denied that motion and the
court of appeal affirmed after two sets of briefing; before and
after the United States Supreme Court’s decision in AT&T
Mobility v. Concepcion.
The Second District Court of Appeal in California affirmed
the trial court, holding that it need not decide whether the
class action waiver is enforceable under AT&T Mobility v. Concepcion because the entire arbitration provision is unconscionable. In reaching this conclusion, the court determined
that the provision was adhesive (i.e., it is in a pre-printed,
“take-it-or-leave-it contract), it involved oppression and sur-
prise due to unequal bargaining power, and it contains harsh
one-sided terms that favor the car dealer to the detriment of
the buyer. Because the provision contains multiple invalid
clauses, the court held, it is “permeated” with unconscionability and, therefore, unenforceable.
What particularly moved the court to find that the arbitration
provision was procedurally unconscionable and therefore constituted surprise was Sanchez’s evidence that he did not know
the contract contained an arbitration provision. Mr. Sanchez
alleged that the dealership personnel never informed him of
its existence and never flipped over the contract to show it to
him.
The court then went on to discuss why the arbitration clause
is also substantively unconscionable. The appeal and self-help
provisions really bothered the court. The court held that
limiting the appeal right to those circumstances where an
award was either $0 or over $100,000 really only benefits the
(Continued on page 6)
Do your printouts look
like this?
5310 Derry Ave,Suite X
Agoura Hills, CA 91301
(877) DMV-DESK
213- 596-5805 Fax
Vehicle Registration Inquiry Report
Commercial Requester Record Continued
2007 CHEV COUPE
5ABC123
RECORD CONDITION
WARNING:
WARNING: SEE RECORD CONDITION
03/09/09 VEHICLE LICENSE AND TITLING STOP
VEHICLE LICENSE AND TITLING STOP - LAW ENFORCEMENT ONLY
2007 CHEV COUPE
Reference #: 253800
5ABC123
Date: 5/4/2010 1:29:22 AM
Request: 1X2XY26U571140712
1X2XY26U571140712
User's Initials: KAT
REGISTERED OWNER INFORMATION
Reason: VEHICLE TRANSFER
Stock #: 12345A
03/17/07 SMOG DUE 03/02/13
NO MAILING ADDRESS
DMVDESK FEE ESTIMATOR TIMELINE
LEGAL OWNER (LIENHOLDER) INFORMATION
Name: SMITH JOHN A
Name: JPMORGAN CHASE BK
Name/Address: 123 MAIN ST
Name/Address: PO BX 5210
Address:
Address:
Address:
Address:
City: AGOURA HILLS
City: NEW HYDE PARK
Zip Code: 91301
Zip Code: 11042
County: LOS ANGELES (19)
Allocated County:
Date of Latest Registration Card Issuance:
05/22/2008
Date of Latest Ownership Certificate:
03/03/2009
VEHICLE INFORMATION
COMMERCIAL VEHICLE INFO
Vehicle Type: AUTO - USED (12)
Gross Veh Code:
Make: 2007 CHEV COUPE
Cert Indicator:
License Plate: 5ABC123
Axle:
Expires: 03/02/2009
Weight:
VIN: 1X2XY26U571140712
Cylinders:
Type License: Regular Auto (11)
Operating Wt:
Body Type: Passenger Vehicle and Motorcycle (0)
Fuel: GAS (G)
Date First Sold: 2007
Asterisk Year:
Subplate:
Price Class (VLF): NY
1
RECORD STATUS:
Due to DMV: $ 0
Prorate No:
Equipment No:
Engine Number:
ODOMETER
02/26/2007: 50 MILES ACTUAL MILEAGE
TOTAL REGISTRATION FEES DUE TO DMV
Today
As of 12/18/2010
As of 03/03/2011
$ 1521
($ 893 + $ 628 penalty)
$ 1974
($ 1346 + $ 628 penalty)
$ 2447
($ 1322 + $ 1125 penalty)
Current Registration Year
Transfer Fee
Registration Fee
CHP Fee
Smog Abatement Fee
Smog Exemption Fee
VLF Fee
County Fee
Penalty - Registration Fee
Penalty - CHP Fee
Penalty - VLF Fee
Subtotal
1st Prior Registration Year
Registration Fee
CHP Fee
Smog Abatement Fee
Smog Exemption Fee
VLF Fee
County Fee
Penalty - Registration Fee
Penalty - CHP Fee
Penalty - VLF Fee
Subtotal
2nd Prior Registration Year
Registration Fee
CHP Fee
Smog Abatement Fee
Smog Exemption Fee
VLF Fee
County Fee
Penalty - Registration Fee
Penalty - CHP Fee
Penalty - VLF Fee
Subtotal
Total Registration Fee
Today
5/4/2010
2010 Fees
$ 15
$ 34
$ 22
$ 20
$8
(1.15%) $ 419
$ 10
$ 30
$ 30
(60%) $ 251
$ 839
2009 Fees
$ 34
$ 22
$ 20
$8
(0.65%) $ 271
$ 10
$ 50
$ 50
(80%) $ 217
$ 682
$ 1,521
Fee calculation based on purchase
As of
As of
As of
12/18/2010
3/3/2011
3/13/2011
2011 Fees
2011 Fees
2011 Fees
$ 15
$ 15
$ 15
$ 34
$ 34
$ 34
$ 22
$ 22
$ 22
$ 20
$ 20
$ 20
$8
(1.15%) $ 359
(1.15%) $ 359
(1.15%) $ 359
$ 10
$ 10
$ 10
$ 10
$ 15
$ 10
$ 15
(10%) $ 36
(20%) $ 72
$ 468
$ 516
$ 562
2010 Fees
2010 Fees
2010 Fees
$ 34
$ 34
$ 34
$ 22
$ 22
$ 22
$ 20
$ 20
$ 20
$8
(1.15%) $ 419
(1.15%) $ 419
(1.15%) $ 419
$ 10
$ 10
$ 10
$ 30
$ 50
$ 50
$ 30
$ 50
$ 50
(60%) $ 251
(80%) $ 335
(80%) $ 335
$ 824
$ 940
$ 940
2009 Fees
2009 Fees
2009 Fees
$ 34
$ 34
$ 34
$ 22
$ 22
$ 22
$ 20
$ 20
$ 20
$8
(0.65%) $ 271
(0.65%) $ 271
(0.65%) $ 271
$ 10
$ 10
$ 10
$ 50
$ 100
$ 100
$ 50
$ 100
$ 100
(80%) $ 217
(160%) $ 434
(160%) $ 434
$ 682
$ 991
$ 991
$ 1,974
$ 2,447
$ 2,493
As of
4/2/2011
2011 Fees
$ 15
$ 34
$ 22
$ 20
(1.15%) $ 359
$ 10
$ 30
$ 30
(60%) $ 215
$ 735
2010 Fees
$ 34
$ 22
$ 20
(1.15%) $ 419
$ 10
$ 50
$ 50
(80%) $ 335
$ 940
2009 Fees
$ 34
$ 22
$ 20
(0.65%) $ 271
$ 10
$ 100
$ 100
(160%) $ 434
$ 991
$ 2,666
Page 1 of 2
Page 2 of 2
Use of this Vehicle Registration Inquiry Report must adhere to the requirements by the Department of Motor Vehicles set forth in your Requester Agreement. Any use of this system outside that
prescribed in the Requester Agreement is strictly prohibited. Vehicle Registration Inquiry Reports may not be shared with anyone outside the authorized requester's company.
Use of this Vehicle Registration Inquiry Report must adhere to the requirements by the Department of Motor Vehicles set forth in your Requester Agreement. Any use of this system outside that
prescribed in the Requester Agreement is strictly prohibited. Vehicle Registration Inquiry Reports may not be shared with anyone outside the authorized requester's company.
KSRs that are easy to read and understand.
Another first from the thought-leaders at DMVdesk®.
Mention this ad and get $2 KSRs for 60 days (new DMVdesk clients only)
(877) DMV-DESK (368-3375)
www.dmvdesk.com
Page 6
Transmission (October/November, 2011)
Arbitration Clause Ruled Invalid
(Continued from page 1)
continue to accept/require the 553-CA-ARB (1/10) (which
contains the same arbitration language as the 553-CA-ARB
(5/08)). If this is the case, dealers may have no choice but to
continue to use the 553-CA-ARB (particularly if the lender is
the dealer's captive).
In the event a lender gives dealers the choice of whether to
use the 553-CA or the 553-CA-ARB, then the dealer should
consult with their own legal counsel. Of course, dealers may
want to seriously consider the fact that there has been no
official declaration that any portion of the 553-CA (the nonarbitration version) is invalid. Unfortunately, the same cannot
be said of the 553-CA-ARB in light of the Sanchez decision.
Therefore, from a compliance perspective, Auto Advisory
Services is of the opinion that using the 553-CA is a much
safer bet right now than continuing to use the 553-CA-ARB.
But, due to lender policies, this may not be an option for
many dealers.
Trust us when we say that this issue will continue to develop
for quite some time. The Sanchez case will likely be appealed
to the California Supreme Court, which could conceivably
result in a reversal of this decision (it's conceivable, but
unlikely). California courts have been quite hostile to pre-
dispute arbitration clauses in consumer contracts. As some of
our clients may recall, in April of this year, the U.S. Supreme
Court overruled the California Supreme Court in another
consumer contract arbitration clause case (see U.S. Supreme
Court Overrules California Supreme Court: Class Waivers Are
Valid!, Transmission, May, 2011). Judges don't really like to be
overturned, especially state Supreme Court justices. So, the
Sanchez case may give the California Supreme Court justices a
way to strike back at the U.S. Supreme Court by focusing on
the state-law determined issue of unconscionability.
At the end of the day, dealers really do need to take this issue
seriously. On the one hand, arbitration clauses help protect
dealers from expensive class action litigation. But on the other
hand, the mere existence of an "unconscionable" class action
provision within a sale contract could result in exposure to
the dealership.
For a more detailed look into the Sanchez decision, please see
Dissecting the Sanchez Decision: No More Arbitrations? beginning
on page 2.
For more information, contact the AAS Hotline
(hotline@autoadvisory.com or 800.785.2880) or Rob Cohen,
Esq. at Arent Fox, LLP (cohen.rob@arentfox.com or
213.443.7626).
The Sanchez Decision (Cont.)
(Continued from page 4)
dealer. A truly bilateral clause would, according to the court,
allow the buyer to appeal an award below $100,000.
Continuing on the unilateral nature of the relief permitted,
the court seized on the repossession carve-out. This is the
portion of the arbitration provision that allows the parties to
exercise the right of self-help without requiring them to arbitrate. Ignoring the fact that repossession was not an issue in
the underlying case and that the remedy of repossession was
a pre-dispute contractual remedy that typically belongs to the
assignee, not the dealer, the court noted that never would it
be the case that the buyer would want or need to exercise
any self-help rights. This, the court held, transforms the right
of repossession into a unilateral right as a matter of practice.
Another reason the court found the appeal provision to be
unconscionable was that the party requesting a new arbitration in front of a three-arbitrator panel is responsible for the
filing fee and other arbitration costs of both parties (subject
to a final determination by the arbitrators of a fair apportionment of costs). This, the court found, leaves the buyer in the
dark as to the amount to be paid in advance, creating the
possibility that the buyer may have to advance unaffordable
expenses and the provision effectively discourages buyers
from pursuing an appeal and enforcing their rights under the
CLRA.
Here, the court’s logic is internally inconsistent. If it is more
likely than not that a dealer would utilize the appeal provision
because any reasonable award would most certainly exceed
$100,000, then it is more likely than not that the practical
effect of the appeal provision is to require the dealer, not the
buyer, to front the fees and costs of both parties of a new
three arbitrator panel.
Ignoring the practicalities of consumer litigation against automotive dealers, the court also found the appeal provision to
be unconscionable because it allowed preliminary injunctive
relief to be delayed under the appeal provision. This delay, the
court reasoned, only benefits the dealer. In the real world,
however, consumers do not seek preliminary injunctive relief
against dealers. Moreover, the court’s logic and analysis is
again internally inconsistent here and belies its analysis that
the advancement of fees and costs is unilateral. Specifically, if
an arbitrator hypothetically awards preliminary injunctive re(Continued on page 8)
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Page 8
Transmission (October/November, 2011)
The Sanchez Decision (Cont.)
(Continued from page 6)
lief, than in order to delay the effect of that relief the dealer
must front both parties’ fees and costs and the cost of a three
-arbitrator appeal panel.
In reality, the court had issue with only two provisions; the
appeal provision and the self-help provision. But to inflate the
appearance of unconscionability, the court sub-divided these
two “defects” into four, all favoring the dealer, in order to
support its finding that they permeated the agreement:
(1) the right to appeal to a three-member panel an
adverse monetary award that only the buyer is likely
to receive – an award exceeding $100,000; (2) the
dealer’s right to appeal an award of injunctive relief –
a remedy that only a buyer would seek – to a threemember panel, thereby undermining the purpose of
that type of remedy and the goals of arbitration itself; (3) the advance payment of arbitral expenses on
appeal requires the buyer, when appealing to a three
-member panel, to pay the expenses of both parties
even though he or she may not be able to afford
them; and (4) the remedy of most importance to the
dealer – repossession – is exempt.
Instead of severing the offensive appeal provision and striking
the self-help remedy, the court held that these “defects” cannot be cured in an appropriate way and refused to enforce
the entire arbitration agreement.
Aside from the court’s complete disregard for the reach of
AT&T Mobility v. Concepcion, and its unconscionability analysis
that is applied in a manner that disfavors arbitration, it is perhaps the court’s refusal to sever the appeal and self-help provisions and enforce the remainder that is most troubling.
These provisions are clearly self-contained and do not permeate the agreement. Specifically, if the appeal provision is
stricken, both parties still have all of the statutory appeal
rights available under the Federal Arbitration Act. And, if the
self-help provision is stricken it will not affect either party,
since it is the right of the secured party, not necessarily the
dealer, to exercise the right of repossession.
It is our understanding that this decision will be appealed to
the California Supreme Court. But, it is clear from its analysis
that the court of appeal was speaking directly to the California Supreme Court. The analysis is flawed in many respects
and was clearly outcome driven. For now, however, it is the
only California appellate decision post-AT&T Mobility v. Concepcion, addressing the enforceability of the arbitration provision in the LAW® 553-CA-ARB contract. The court of appeal found a way around AT&T Mobility v. Concepcion that
other courts are likely to seize upon, not just in California, but
in other states as well.
In the meantime, dealers who still choose to use the LAW®
553-CA-ARB (or are forced to by their lenders), should take
the time to show customers the arbitration provision and
have them initial it (on all copies of the RISC) to establish that
they read the provision. Best practices may include maintaining
a stash of LAW® 553-CA sale contracts (the contract that
does not contain an arbitration provision) in the event a customer refuses to sign a form that contains an arbitration provision. Dealers are advised to seek the assistance of counsel
to devise practices that will mitigate a finding of procedural
unconscionability and increase the chances of finding the arbitration agreement in the LAW 553-CA-ARB form contract
valid and enforceable.
Christian Scali is a partner with Arent Fox, LLP in the firm’s automotive
industry group. His practice focuses on business and consumer litigation at
both the trial and appellate level, with a significant emphasis in class actions, franchise law, and commercial law. Chris has been advising and representing dealerships in various capacities for over 12 years. He can be
reached at scali.christian@arentfox.com or (213) 443-7621.
Imitation is the sincerest
form of flattery.
– Charles Caleb Colton
The award-winning DMVdesk® has been built over
the last four years on the feedback of over 500
registration clerks, office managers and controllers.
Don’t accept an imitation.
Call today for more information
and to schedule a demonstration.
1-877-DMVDESK (368-3375)
LOGBOOK
PLATEFREE eFILING
BUNDLE MANAGER
DASHBOARD
www.dmvdesk.com
Transmission (October/November, 2011)
Page 9
Auto Advisory Services and Arent Fox Announce
Year-end New Law Workshops
It's that time of year again! Be sure to stay ahead of the game
by attending an informative and practical year-end workshop
hosted by the leading automotive industry attorneys at Auto
Advisory Services and Arent Fox. See what's in store for
your store next year and see what plaintiff lawyers are suing
dealers for these days.
Here are some of the things that will be discussed:
•
•
•
•
•
•
•
•
New mandatory electronic vehicle registration (AB 1215)
New National Motor Vehicle Titling and Information System (NMVTIS) requirements
New court decision that slams arbitration clauses found
in many retail contracts
What the Federal Trade Commission has on its radar
screen and how that will impact dealers
Employment law update
How to avoid becoming the victim of recent class action
lawsuits
How to best prioritize compliance efforts at your dealership
And more!
Those who have attended AAS workshops in the past know
that these are not the excruciatingly boring, struggle-to-stayawake, and impractical legal seminars that are filled with legal
mumbo jumbo. Our workshops discuss real-life cases, not
hypothetical "what ifs." We provide highly detailed and easy to
follow instructions that you can take back to your dealership
for immediate implementation.
Dealers should be aware that beginning July 1 of next year,
electronic filing of vehicle registrations will be mandatory for
all new vehicle dealers. To ensure dealers have all the information necessary to ensure compliance with the new requirements, AAS workshops will feature the chairman of Motor
Vehicle Software Corporation, Kelly Kimball. Kelly is one of
architects of DMVdesk and has helped reshape the boundaries
of the California DMV’s Business Partner Automation program.
Agenda
•
•
•
•
•
9:00 to 10:00 AM – New Sales/Finance/Service Laws
10:00 to 10:10 AM – Break
10:10 to 11:00 AM – New Employment/Labor Laws
11:00 to Noon – Litigation Update – Current Class
Actions – High Exposure Compliance Areas
Noon to 12:30 PM – AB 1215 Workshop/DMVdesk demonstration
Speakers
The AAS Year-end Workshops will feature a full line-up of top
-notch industry experts to answer all your questions. Our
speakers will include;
•
•
•
•
•
Rob Cohen, president of Auto Advisory Services and senior automotive counsel with Arent Fox.
Aaron Jacoby, chair of the Arent Fox Automotive Industry
Practice Group
Harry Johnson, partner in the Arent Fox Labor Employment & OSHA practice group.
Carla Feldman, partner in the Arent Fox Labor Employment & OSHA practice group
Kelly Kimball, chairman and co-founder of Motor Vehicle
Software Corporation (creators of DMVdesk®)
Dates/Locations
San Bernardino -- Nov. 16, 2011
National University
804 East Brier Drive
San Bernardino, CA 92408
9:00 AM to 12:30 PM
San Diego -- Nov. 18, 2011
National University
Spectrum Learning Center
9388 Lightwave Avenue
San Diego, CA 92123
9:00 AM to 12:30 PM
Costa Mesa -- Nov. 22, 2011
National University
3390 Harbor Boulevard
Costa Mesa, CA 92626
9:00 AM to 12:30 PM
Universal City -- Dec. 13, 2011
Sheraton Universal
333 Universal Hollywood Drive
Universal City, CA 91608
9:00 AM to 12:30 PM
San Jose -- Dec. 15, 2011
National University
3031 Tisch Way
100 Plaza East
San Jose, CA 95128-2541
To register, please see the enclosed flyer or visit
www.autoadvisory.com and click “Year-end Workshops.”
Page 10
Transmission (October/November, 2011)
Checklist for Contract Completion
What’s the best way to avoid lawsuits? Set strong policies,
train personnel often, and get the paperwork right. Here is a
checklist that dealer personnel may want to use to help ensure that retail installment sale contracts are completed properly.
LAW® 553-CA RETAIL INSTALLMENT SALE
CONTRACT COMPLETION CHECKLIST
Customer and Vehicle Identification
All customer and dealer information is complete and accurate.
All vehicle information is complete and accurate. VIN
matches the vehicle that was delivered. Odometer reading is correct.
The red “New/Used” box contains either “New” or
“Used,” nothing else.
Customer was asked whether the vehicle is being purchased primarily for personal, family or household purposes. The appropriate primary use box was checked.
Federal Truth In Lending Disclosures
There are no manual modifications to the pre-printed
material in the federal box. Any other manual modifications must be approved by the lender.
No initials are present. A highlighter was not used.
Payment schedule is properly completed. All deferred
downpayments (i.e., “pickup payments”) are disclosed in
this schedule.
The number of payments is properly stated and the date
to first payment is within lender guidelines.
If the first payment is due less than 30 days from the date
of the contract, check for backdating. Under no circumstances should a retail installment sale contract be backdated.
Itemization of Amount Financed
Line 1.A.1. contains the price of the vehicle as it sits on
the lot. Line 1.A.1. includes pre-installed hard accessories
that are properly itemized on a price addendum affixed
to the vehicle. A signed/initialed copy of the price addendum should be in the deal jacket.
Line 1.A.2. contains the total price of all accessories
that were requested by the customer and are to be installed/added after the customer executes the contract.
Line 1.A.2. shall NOT include any item that qualifies as a
theft deterrent device, surface protection product, ser-
vice contract, Gap contract, contract cancellation option
agreement, or insurance product.
Line 1.A.3. is generally not used. However, it may be
permissible to use this line for accessories that are to be
installed in order to make a vehicle operable by and/or
accessible to people with disabilities (i.e., hand controls,
wheelchair lift, etc.).
Line 1.B. is a maximum of $55 and is properly described
as a document preparation fee. This fee is not represented as a government fee and is not represented as
being “required by law.” Note: Effective July 1, 2012, this
fee will be re-labeled as “Document processing charge”
and increased to a maximum of $80 (assuming a dealership is signed up as a second line business partner with
the DMV).
Line 1.C. is for the smog labor fee and should be no
more than $50. It may only be charged when the vehicle
required a smog inspection and such inspection was actually performed by dealer personnel (or an authorized
agent).
Lines 1.D. through 1.F. contain charges for any theft
deterrent devices that were sold. Theft deterrent devices
include alarm systems, etch products, ignition/cutoff
switches, steering locks, and Lojack (or similar products).
Each must be separately itemized.
The name of the third party to which payment is
made on the customer’s behalf is indicated adjacent
to “to whom paid.”
Lines 1.G. and 1.H. contain charges for any surface
protection products that were sold. Surface protection
products include undercoating, rust proofing, paint sealants, and fabric/carpet stain inhibitors. Each must be
separately itemized.
The name of the third party to which payment is
made on the customer’s behalf is indicated adjacent
to “to whom paid.”
Line 1.I. is for sales tax that is due on the transaction.
Generally, all retail sales are taxable when the customer
takes possession of the vehicle in California. Non-taxable
sales must be properly documented. Calculate the sales
tax rate based upon the county in which the buyer is to
garage the vehicle.
Line 1.J. is for the Optional DMV Electronic Filing Fee. It
can be no more than $29 and is only chargeable if (1) the
dealer is a second-line business partner with the DMV,
AND (2) the transaction is filed electronically, AND (3)
the customer consents to the fee prior to the presentation of the contract. Note: This will change effective July
1, 2012 when electronic filing will no longer be optional
and the dealer will only be able to charge the customer
(Continued on page 11)
Transmission (October/November, 2011)
Page 11
Checklist for Contract Completion (Cont.)
(Continued from page 10)
the same fee that the dealer is charged by the first-line
service provider.
Lines 1.K. through 1.O. contain charges for any service contracts that were sold. Service contracts include
dent and ding, tire and wheel, and windshield repair programs in addition to maintenance and traditional service
agreements. All service contracts must be separately
itemized.
The name of the third party to which payment is
made on the customer’s behalf is indicated adjacent
to “to whom paid.”
Line 1.P. contains any negative equity that remains after
accounting for a customer’s downpayment and/or third
party rebates. Negative equity must be disclosed. This
line should not be used for lease-turn ins. This line should
only be used if a trade with net negative equity is brought
into inventory.
The name of the third party to which the payoff is
made is indicated on the appropriate line.
Line 1.Q. contains the charge for any Gap contract that
was sold.
The name of the third party to which payment is
made on the customer’s behalf is indicated adjacent
to “to whom paid.”
Line 1.R. contains the charge for a Used Vehicle Contract Cancellation Option Agreement that was sold.
These are rarely sold but must be offered to all purchasers of used vehicles priced under $40,000. The charge for
this agreement is limited based upon the following
schedule:
Cash Price of Vehicle
Maximum Charge for
Contract Cancellation
Agreement
$5,000 or less
$75
$5,000.01 - $10,000
$150
$10,000.01 - $30,000
$250
$30,000.01 - $39,999.99
1% of the purchase price
The cash price used to determine the maximum charge
for the contact cancellation agreement is basically the
selling price of the vehicle itself, along with hard accesso-
ries. The cash price excludes the following items: doc fee,
license and registration fees, DMV electronic filing (BPA)
fee, taxes, smog fees, tire fees, prior credit or lease balance (i.e., properly disclosed negative equity), service contracts, theft deterrent devices, surface protection products, debt cancellation agreement (Gap), and the amount
charged for a contract cancellation option agreement.
Line 1.S. is used only when a specific use (such as for
lease turn-ins, transportation charge, etc.) has been approved by the dealer’s attorney and assignee finance companies.
Line 2.A. contains only the Vehicle License Fee (VLF).
VLF is approximately 0.65% of the sum of lines 1.A.1.,
1.A.2., 1.D., 1.E., 1.F., 1.G. and 1.H. (“total sale price”).
We say “approximately” because it really is 0.65% of the
odd-hundred midpoint of the vehicle price range as determined by the DMV. In other words, if the total sale price
is $28,832, the VLF is 0.65% of $28,900 (or $188). If the
total sale price is $28,995, the VLF is 0.65% of that same
$28,900. The VLF (as well as all DMV fees) are rounded
to the nearest dollar.
Line 2.B. contains the litany of other DMV-related fees
that may pertain to the specific transaction. Here is a partial list of those fees as currently set: Registration Fee
($46), Transfer Fee ($15), California Highway Patrol
(CHP) Fee ($23), Reflectorized License Plate (RLP) Fee
($1), Smog Abatement Fee ($20), County and District
Fees (from $0 to $24, depending on registration county),
Weight fees, Miscellaneous fees (special plates, etc.)
Line 2.C. contains the California Tire Fee. This fee is
$1.75 PER NEW TIRE! Some systems default to $8.75,
which is only the correct amount if the vehicle that is being sold has five new tires. Vehicles with no spare tire and
used vehicles do not generally have five new tires. The fee
should be $1.75 when a dealer is selling a demonstrator
that still has a new spare tire.
Line 2.D. is generally not used.
Line 3 contains amounts paid to insurance companies.
Unless the dealership and personnel are properly licensed
to sell insurance products, this line should not be used.
Line 4 contains the Smog Certification or Exemption Fee.
The $8.25 smog fee is charged under the same circumstances where a $50 smog labor charge may be collected
(see Line 1.C. above). The Smog Exemption Fee is charged
when a vehicle is not required to be smogged prior to
sale, but only because it is four model years old or newer.
Never charge both fees at the same time and never
charge either fee on new vehicles or vehicles powered by
electric/hybrid engines.
(Continued on page 12)
Page 12
Transmission (October/November, 2011)
Checklist for Contract Completion (Cont.)
(Continued from page 11)
Line 5 contains a subtotal. This is a figure that is calculated by the DMS and should not be overridden.
Line 6.A. contains the agreed trade-in value. Where
possible the agreed upon trade-in value should reflect the
ACV of the trade-in vehicle. Avoid overallowances.
The trade-in vehicle is properly identified and the
odometer entry is accurate.
Line 6.B. contains the trade payoff.
Line 6.C. contains the net trade-in value after the payoff
is subtracted from the agreed trade-in value. This number
reflects trade equity, gross negative equity, or is zero.
This is a number that is calculated by the DMS and should
not be overridden.
Line 6.D. contains any deferred downpayment amounts.
Any downpayment that is not due and payable on the
date the vehicle was delivered is a deferred downpayment and must be disclosed on this line. All deferred
downpayments must also be reflected in the payment
schedule in the Truth In Lending box.
The deferred downpayment DOES NOT have a due
date past the second scheduled installment.
A hold check agreement signed by customers IS
NOT USED.
Line 6.E. contains only manufacturer rebates. Never
offer dealer rebates.
Line 6.F. occasionally contains a lender’s rebate. This
line should only be used with prior lender approval. This
line was used extensively to reflect government credits
issued pursuant to the “cash for clunkers” program in
2009.
Line 6.G. contains cash and check (due and payable)
downpayments received at the time of delivery.
Credit card downpayments are only accepted with
prior lender approval.
Signatures
All customer signatures are properly obtained.
Statement of Insurance (always)
How This Contract Can Be Changed (always)
Public Liability Insurance Warning (notice in red ink)
(always)
Payoff Agreement (whenever there is a trade)
Complaint Notification (always)
Buyer Signature/Co-Buyer Signature (always)
Seller Signs (always)
Other Owner Signature (rarely, most lenders will not
permit usage of an “other owner”)
Guarantor (only in commercial transaction with a
guarantor)
Application for Optional Credit Insurance (never,
because dealers typically don’t sell this)
Optional Gap Contract (only if gap is sold)
Service Contract (only if service contract(s) are sold)
Authorized manager has signed the contract.
Option (only if granted by dealer). Note: Option date
should be no more than seven days after the date of
the contract (recommended).
Seller Signs (always)
Other Items
Autobroker transactions are properly disclosed.
Seller Assisted Loan section is not used.
Optional Service Contracts section is properly completed
and items correspond to the charges on the appropriate
lines in the Itemization of Amount Financed.
Guaranty box is only used on commercial transactions
and when instructed, in writing, to do so by a finance
company.
The contract does not contain any blank spaces. All unused fields are completed with “N/A.”
The customer was provided with a fully completed copy
of the contract.
The contract was lined up properly when put through the
printer.
THE CONTRACT WAS DATED ON THE SAME
DATE THAT THE VEHICLE WAS DELIVERED.
Contracts may not be backdated to an original delivery
date after a rewrite.
Notice of Seller’s Right to Cancel (always, except in
purely cash deals—meaning actual currency and/or
wire transfers)
Auto Advisory Services has made reasonable efforts to ensure the accuracy of the subject matter reported. AAS makes no express or implied warranty respecting the information
presented and assumes no responsibility for errors or omissions. This newsletter should not be used as a substitute for proper professional or legal advice. If legal advice or other
expert assistance is required, the services of a competent professional should be sought.
Copyright © 2011 Auto Advisory Services, Inc. All rights reserved. This publication or any portion thereof may not be reproduced, republished, stored in an electronic retrieval system, or otherwise commercially used without the written consent of Auto Advisory Services.